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Superior Coal Co. v. Dept. of Revenue





APPEAL from the Circuit Court of Cook County; the Hon. WILLIAM V. BROTHERS, Judge, presiding.


The appellant, hereinafter referred to as plaintiff, prosecutes this appeal from a judgment of the circuit court of Cook County, affirming a final assessment under the provisions of the Retailers' Occupation Tax Act, which assessment was made by the Department of Revenue of the State of Illinois, defendant-appellee herein, and hereinafter referred to as the Department. Said assessment is for the period from July 1, 1948, through July 31, 1951, and is for $253,305.76 plus a penalty of $25,330.78.

This was a deficiency assessment based upon certain sales of coal by the plaintiff to the Chicago and North Western Railway Company, hereinafter referred to as the railroad. The Department contends that the receipts from these sales should be included in the sales and gross receipts of the plaintiff notwithstanding the fact that the coal was destined to out-of-State points. The plaintiff asserts that the sales are within the interstate commerce exception contained in section 2 of the Retailers' Occupation Tax Act and are therefore not taxable.

The review action in the circuit court, pursuant to the provisions of the Administrative Review Act (Ill. Rev. Stat. 1951, chap. 110, par. 264 et seq.) resulted in an affirmance of the assessment and judgment thereon. Revenue being involved, an appeal lies directly to this court.

The essential facts necessary to a determination of this controversy indicate that the plaintiff is a wholly owned subsidiary of the railroad. In 1930 plaintiff and the railroad entered into a contract, by the terms of which plaintiff agreed to sell and the railroad agreed to buy coal at certain prices, f.o.b. cars of the railroad on its tracks at the mine.

In 1932, certain amendments were made to the contract, but the evidence indicates that by mutual agreement the parties have rescinded these amendments, and during the tax years here involved were operating under the terms of the 1930 contract.

Under the terms of the agreement the railroad ordered coal on written orders issued from its Chicago offices directed to the plaintiff, requesting that the coal thus ordered be loaded. The coal was to be loaded and marked for specific destinations both in and out of the State of Illinois. The evidence in this case is that when the coal was loaded, memorandum manifests were made up by an employee of the plaintiff and handed to an employee of the railroad. These memorandum manifests moved with the coal from the mine to the weigh office at Benld, Illinois. There an employee of the railroad made up a manifest showing all of the information contained on the memorandum manifest plus the gross weight.

After preparation of the manifest the railroad company on its own behalf prepared a waybill — a document giving a history of the movement of the freight. Two forms of waybills appear in the record. One, used during the earlier part of the tax period, was that of a waybill for company freight, and later the form used was the same as that employed by the railroad for ordinary commercial shipments.

The directive ordering the change in the form of waybill used provided that "shipments of company coal destined to stations outside of the State of Illinois will be waybilled, * * * on regular commercial waybills, * * *." This directive was dated March 8, 1950. The evidence is that thereafter the commercial form of waybill was, in fact, used.

The railroad did not pay freight charges on this coal to itself. On commercial waybills, the freight and other incidental charges are noted. This is apparently only a bookkeeping transaction. Under company billing it appears that not even bookkeeping entries were made since the applicable regulations of the Interstate Commerce Commission prohibit freight charges for company material being shown as an item of revenue or the inclusion of such charges in its costs of material.

The vast majority of coal billed for out-of-State shipment was actually delivered to its billed destination and used as intended. There are, however, some instances in which diversions from the destination were made. This appears to have been done by the plaintiff pursuant to a prior request received from the railroad. In at least one instance, the railroad, acting on its own authority without a prior request or notice to plaintiff, diverted a shipment.

Cars of freight, including coal, may be diverted from their original destinations while in transit under appropriate tariffs. The one applicable to these shipments provided for diversions by either the shipper or the consignee upon certain conditions not here material.

The facts of these sales, as above outlined, are the basis for the contention by the plaintiff that the sale of coal destined for out-of-State delivery is not subject to the Retailers' Occupation Tax Act. It asserts that such sales fall within the exception applicable to interstate business reading: "However, such tax is not imposed upon the privilege of engaging in any business in interstate commerce or otherwise, which business may not under the Constitution and statutes of the United States be made the subject of taxation by this State."

The Department argues that these transactions are not within said exception, that the tax in question is not a tax upon the sale but upon the occupation of selling at retail, and that here the entire sales transaction takes place within the State of Illinois. It is further asserted by the Department that the case of Superior Coal Co. v. ...

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